From: Peter C. McCluskey (pcm@rahul.net)
Date: Mon Jan 24 2000 - 13:36:59 MST
ml@justintime.com (Mike Linksvayer) writes:
>Gregory Aharonian <http://www.bustpatents.com/> has a novel
>idea for using the stock market to make money attacking bad
>patents. The full article is at
><http://lwn.net/daily/patnews.html>. Here's an excerpt that
>describes that the basic idea...
>
> ...is to find weak (portfolios of) patents for which, thanks
> to the craziness of the Internet, their assignee's stock
> price is bubble-ish to the point of having a high price and
> volume (creating liquidity and volatility to exploit).
It is naive to think one can easily make money this way. Most software-
related companies with high prices have high prices not because of their
patents but because they provide good services and/or have created a good
brand name (the few exceptions such as RSA have relatively secure patents).
There have been some biotech companies recently where knowing in advance
of an adverse patent ruling would have made you rich (e.g. VISX), but in
most industries knowing that a company would have a patent declared invalid
wouldn't be enough to make me comfortable betting against a company.
Also, insider trading laws may pose a serious obstacle for this strategy.
Let me propose a different strategy. Someone might be able to buy the
patent affecting the GIF format from Unisys, and then demands outrageous
royalties from companies that infringe on the patent unless they promise
not to initiate any patent suits.
This would require risking a lot of money (assuming Unisys would sell at
all - an assumption which I don't know how to evaluate) with no clear
reason to expect to get much return on investment. But if it could get
started, it would almost certainly persuade some large companies that
currently approve of software patents to switch to lobbying against them.
>I used to think that a similar strategy could be employed
>against any company whose valuation is based on proprietary
>technology which could be reengineered for substantially less
>money than the technology adds to the company's valuation:
>reengineer the technology in secret, short the stock, give
>the technology away. I'm quite skeptical of this idea now
>because I think you'd need to create a perfect substitute
>(bug-for-bug in software terms) and do lots of marketing to
>ensure your success, both of which require lots of capital.
Bug compatibility isn't very important.
Marketing is a hard part of that strategy. If the primary goal of the
company is to get rich shorting competitors, users will have good reason
to doubt that the free software will be well maintained - the authors are
almost promising to lose interest in it once the effect on the proprietary
producer's stock is complete.
-- ------------------------------------------------------------------------ Peter McCluskey | Boycott Amazon.com until they stop suing http://www.rahul.net/pcm | companies that support 1-click shopping.
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